How do you avoid Director Penalty Notice liability? The steps below outline the best way to go about NOT receiving a Director Penalty Notice, or if one is issued by the ATO, the best way of dealing with it.
We have seen numerous directors end up with large personal tax debts or even go bankrupt because they became personally liable for a company’s unpaid PAYG Tax or superannuation as a result of a Director Penalty Notice.
What can you do to avoid Director Penalty Notice liability?
You can avoid Director Penalty Notice liability and its associated risks by following these steps:
1. Lodge a company’s BAS or SGC Statements within relevant periods. If If you do this, even if the company does not pay the required PAYG Tax or superannuation and the ATO issues you with a Director Penalty Notice, you can avoid liability by placing the company in liquidation or voluntary administration within 21 days of the date of the notice.
The relevant period for lodging BAS is three months from when the BAS is due.
In May 2019 new legislation was passed to change the date upon which company directors become automatically liable for SGC amounts. The new date is the date which SGC Statements are due which are:
|Quarter||Period||Super Due for Payment||SGC Statement Due Date|
|1||1 July – 30 September||28-Oct||28-Nov|
|2||1 October – 31 December||28-Feb||28-Feb|
|3||1 January – 31 March||28-April||28-May|
|4||1 April – 30 June||28-Jul||28-Aug|
NOTE: If you don’t lodge BAS or SGC Statements within relevant periods, you CANNOT avoid liability under a Director Penalty Notice by appointing a liquidator or voluntary administrator to a company.
2. Make sure that your residential address as a director of a company is up to date with the ASIC. The ATO sends Director Penalty Notices to a director’s home address, as per the ASIC’s records. The fact that you did not receive the Director Penalty Notice because you have moved address is not a “defence” to a claim by the ATO under a Director Penalty Notice. As such if you do not receive the notice because you have moved, you will not be able to rely upon appointing a liquidator or voluntary administrator to the company to avoid liability (even if lodgements have been made within required timeframes).
3. If your company has a tax or SGC debt, enter into a payment arrangement with the ATO. The ATO will not issue a Director Penalty Notice while a payment arrangement is in place and being complied with.
4. Prioritise paying your company’s superannuation. Often, directors of companies in financial difficulty stop paying superannuation (and they also don’t lodge SGC Statements), not knowing that they can be personally liable for unpaid superannuation under the ATO’s director penalty regime.
5. Get professional advice early on if your company encounters financial problems. A solicitor or registered liquidator will be able to advise you on all potential risks that you will face in these circumstances, including the risk of a Director Penalty Notice. They will also be able to assist you implement solutions to overcome your problems.
6. Be careful if you are coming on board as a director of an existing company or resigning as a director. If you become a director of an existing company, you can be personally liable for any outstanding PAYG Tax and superannuation owed prior to your appointment, as well as liabilities incurred after you become a director. Additionally, resigning as a director does not extinguish personal liability for unpaid PAYG Tax and superannuation incurred during the period of your directorship.
Defences to Director Penalty Notice claims
It’s best to take the steps above to avoid Director Penalty Notice liability in the first place. But, if you do get one, you may be able to rely on the following three defences available:
1. You were unwell at the time that the relevant debts were incurred and therefore could not take part in managing the company.
2. You took reasonable steps to make the company pay required amounts of PAYG Tax or superannuation.
3. You took reasonable steps to place the company into voluntary administration or liquidation at the relevant time.
More information on Director Penalty Notices can be found in the articles mentioned in the introduction to this publication.
If you’d prefer some professional face-to-face advice about avoiding a Director Penalty Notice or about what to do if you’ve received one, please contact us for a no obligation free initial consultation.